All but 3 Provinces Have Debt Burden Exceeding Size of Their Economies: Study

By: Epoch Times - World Posted On: November 08, 2024 View: 0

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Seven of Canada’s 10 provinces have a combined public debt exceeding the entire value of their economies, a situation that can stall economic growth and affect living standards, a new study suggests.

Only British Columbia, Saskatchewan, and Alberta have a gross domestic product (GDP) greater than their combined federal and provincial debt, according to a recent Fraser Institute study based on data from 2022. In the remaining provinces, the combined debt represents more than 100 percent of their GDP, decreasing their chances of economic growth.

“When government debt grows so high that it is larger than the entire value of the economy, not only does additional debt offer no benefit to economic growth, it actually hinders it and living standards stagnate,” said Jason Childs, senior fellow at the Fraser Institute and author of the report.

Childs based his analysis on previous studies of the relationship between public debt and economic growth. He found that countries whose governments had debt above 90 percent of their GDP tended to experience slower economic growth.

“In fact, high levels of government debt can crowd out private investment, raise interest rates and drive inflation, which reduces rates of economic growth,” Childs said.

Debt-to-GDP Ratio in Canadian Provinces

In 2022, Manitoba appeared to have the highest debt-to-GDP ratio, at 141.4 percent, meaning that its combined federal and provincial debt far exceeds the province’s GDP. Quebec followed closely, only 0.1 percentage points behind Manitoba, while New Brunswick came third at 135 percent.

Alberta had the lowest ratio of all provinces, with its combined debt accounting for 63.8 percent of the province’s GDP. Next was Saskatchewan, whose debt represented 77.5 percent of the size of its economy, and British Columbia, with a ratio of just under 80 percent.

The author noted that, although the federal government’s debt does not exceed the 90 percent threshold at which economic growth could begin to slow, factoring in the provinces’ situations provides a clearer picture.

The federal government’s debt grew by 47 percent in the last five years, from just under $1.1 trillion in 2018 to $1.6 trillion in 2023, the study noted. This represented about 55 percent of its nominal GDP (unadjusted for inflation)–an encouraging outlook since it is below the 90 percent threshold.

In addition to federal debt, provinces carry other liabilities totalling approximately $1.4 trillion, according to the report. Adding up provincial debt and other liabilities brings the total government debt to just under $3.5 trillion, which accounts for 120 percent of Canada’s nominal GDP–well above the threshold.

“Canada operates as a federation rather than a unitary state,” wrote Childs. “It is essential that Canadian policy makers consider all possible avenues to support economic growth, including taking steps to reduce debt at all levels of government.”

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